Framing the Default Option Right

Defaults are powerful nudges to shape individuals' behavior: In three experiments, including a large experiment using representative samples from five European countries (n = 4207), we show that they can significantly affect risk-taking by medium to large effect sizes. We also show that implementing a default nudge leads to a lower rating of the advice delivered by the wealth manager compared to no default, an effect that has a medium to large effect size. In addition, defaults the targeted individuals refuse result in lower advice ratings. These side effects call for caution before applying nudges and individualized defaults rather than a one-size-fits-all approach. Additionally, we find evidence pointing to two small effects of framing in default presentation. First, asking how much individuals want to invest in the risky asset emphasizes risk. It reduces investment in the risky asset compared to asking them how much they want to leave on the safe account, particularly for more risk-averse individuals. Second, asking individuals if they want to change a default allocation of 100% in the risky asset leads to more investment in the risky asset than asking them whether they accept such an allocation. Perceived wealth manager honesty appears to mediate the relationship between the default nudge and the rating of the advice.